SNDL (SNDL -3.38%) is a business that's in the process of making a turnaround, and it might be successful. The Canadian company formerly known as Sundial Growers has come a long way from its origins and its time as a meme stock in 2021, and there's reason to believe that it could be a decent investment. 

Turnaround stocks tend to be risky, as do cannabis stocks, and SNDL is no exception because it's both. So is this plucky competitor on the verge of being worth adding to your portfolio, or is it still a bit too risky to touch? Let's dive in.

Why some investors are thinking it's time to nibble

One decent argument for thinking about buying SNDL is that it successfully took a few bites out of markets that will be relatively reliable sources of money for years, assuming it can hold them profitably. 

In particular, SNDL has taken the pole position in several markets in Canada, where it's both the largest private liquor seller, and the largest private cannabis retailer. Management estimates that it has a 9.5% share of the privatized provincial cannabis market. That makes its share about the same, or perhaps even larger (depending on whose claim to having the largest share you choose to believe) than multinational competitors like Tilray Brands, which claims to control 8.3% of the Canadian market.

Given that it had an unrestricted cash balance of CAD$291 million ($216 million) in the third quarter of last year, its most recent quarter, it could keep buying up smaller cannabis companies to capture more of the market too.

In Q3 2022, it brought in CAD$66.2 million in cannabis revenue, powered by its recent purchases of regional marijuana operators like Spiritleaf and ValueBuds, and it has a total of 183 retail locations, many of which are favorably placed. If it can develop enough branding power to keep customers coming back to its stores, it should be able to count on some recurring sales volume and perhaps eventually pass any extra capital on to investors. 

But only its liquor business is profitable, with the segment reporting CAD$10.7 million in gross profit for the quarter. In contrast, its marijuana retailing operations registered a loss of CAD$84.8 million, largely as a result of non-cash asset impairment and goodwill left over from its acquisitions. If you discount those impairments, it brought in CAD$50.3 million in gross profit in Q3, the most in the company's history. It also reported generating CAD$8.5 million in cash from its operations, and it is predicting more is on the way.

So far, so good, right? 

This one needs a bit more time to cook before it's ready -- but not much

It's true that SNDL is much closer to being ready to buy than it was a couple of years ago when it was a meme stock. But there are still a few reasons it makes sense to hold off, starting with the fact that cannabis stocks have tended to be bad investments over the past year or so, and might continue to be for a good while longer. Unprofitable stocks get slammed during bear markets, and SNDL hasn't shown itself to be any exception to that rule of thumb.

Furthermore, the company's SunStream Bancorp investing wing is sitting on a handful of underwater cannabis investments of its own. Though its losses are largely unrealized as of yet, there's CAD$689 million in investments currently deployed, and they only generated CAD$4.3 million in fees in Q3. In other words, with such a small return and plenty of losses on the books, it's hard to believe that SNDL knows which marijuana businesses are apt to grow in value in the context of the bear market. That makes it even harder to believe that its stock is poised for a run up. 

Nonetheless, the fact that the company's cash from operations is finally positive is a major point. If it can demonstrate that last quarter wasn't a fluke, it'll make for a trend. And when it comes to marijuana companies, a cash-generating business is one that's much more likely to be worth buying than one that isn't. 

So keep an eye on SNDL's next few earnings releases, especially the fourth quarter and full-year 2022 update that's scheduled for April 14. It could soon reveal itself to be worth a purchase in the name of a long-term hold. And if you're the brave sort, it might even be worth starting to build a position today.